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Reykjavik, Iceland, satellite image. Reykjavik, which is located in the south west of Iceland, is the country's capital and largest city. It has a population of 113,000, which is just under half of Iceland's total population. Reykjavik, on Faxafloi Bay, is Iceland's chief seaport and the centre of its cod-fishing industry. Taken by the Ikonos satellite on 30 September 2000.